As climate disclosure goes mainstream, California and the International Sustainability Standards Board (ISSB) are leading the charge. With SB 253, SB 261 and AB 1305 now in motion, businesses face a new era of transparency and accountability. Our guide sets out all you need to know about California’s new climate rules, how they intersect with the ISSB’s global standards and what companies must do to prepare, comply and build resilience.

California’s climate leadership and the rise of mandatory disclosure

California has long been at the forefront of global climate policy. As the world’s fourth-largest economy, the state’s actions carry national and international weight, often setting precedents for environmental regulation elsewhere.

Its leadership is underscored by the mounting physical risks – droughts, heatwaves, wildfires – that threaten communities, infrastructure and businesses, as well as transition risks from policy changes, litigation and growing investor expectations.

In the wake of limited federal progress on climate disclosure, California has stepped in with a suite of ambitious new regulations of its own: SB 253, SB 261 and AB 1305.

Through these pioneering regulations, the California Air Resources Board (CARB) and state policymakers are raising the bar on transparency and accountability. These new laws will help companies operating in California mitigate risk, adapt to a changing climate and accelerate meaningful emissions reductions.

Why these regulations matter

The intent behind California’s rules extends well beyond compliance. They are designed to:

• increase transparency – enabling investors, regulators and the public to make more informed decisions
• support climate risk mitigation – giving companies the tools to anticipate and manage both physical and transition risks
• accelerate emissions reduction – pushing organisations to adopt science-based targets, credible decarbonisation strategies and robust transition plans.

According to Samantha Parsons, our Head of reporting and sustainability advisory, “Early alignment will bring tangible benefits. Transparent reporting in line with these new regulations should inform decision making, strengthen trust with investors and customers, enhance resilience and reduce long-term costs.”

Companies will also be better placed to meet the wave of other global disclosure requirements with efficiency and confidence.

The three regulations at a glance

SB 253: Climate Corporate Data Accountability Act

SB 253 requires large companies (with annual revenues above $1 billion) doing business in California to disclose Scope 1, 2 and 3 greenhouse gas (GHG) emissions in accordance with the GHG Protocol. From 2026, companies must disclose annual Scope 1 and 2 emissions as verified by an independent third party. Scope 3 emissions follow in 2027, with assurance requirements increasing over time. By 2030, Scope 1 and 2 disclosures will need reasonable assurance, and Scope 3 at least limited assurance.

SB 261: Climate-Related Financial Risk Act

Under SB 261, companies with annual revenues above $500 million must publish a biennial climate-related financial risk report, starting from 2026. Aligned with the Task Force on Climate-related Financial Disclosures (TCFD) or equivalent standards, such as the ISSB IFRS S2 framework, the reports must address governance, strategy, risk management, and metrics and targets.

AB 1305: Voluntary Carbon Market Disclosures Act

With disclosure requirements taking effect from 1 January 2025, AB 1305 applies to any company selling voluntary carbon offsets or making public climate-related claims – such as ‘carbon neutral’ or ‘net zero’ – in California. It requires detailed disclosures about the offsets used or sold, including project type, registry and calculation methodology. The law is designed to combat greenwashing and ensure the credibility of climate claims.

How prepared are companies?

With AB 1305 already in place, Flag has looked into how well prepared some of California’s largest businesses are for SB 253 and SB 261. While many – especially larger companies – have made progress, our analysis reveals some clear gaps:

• Sectoral variation – technology and clean energy firms are furthest ahead, with manufacturing and retail lagging behind.
• Scope 3 emissions – other than a handful of leaders (Apple, Google, Meta), most companies have incomplete Scope 3 inventories and limited assurance.
• Governance and strategy – board oversight and integration of climate risk into financial planning remain inconsistent.
• Decarbonisation roadmaps – many organisations have net-zero or science-based targets – mainly for Scopes 1 and 2 – but lack interim milestones or detailed pathways.

Even among the leading companies, further work is required to meet California’s disclosure standards fully, especially in relation to Scope 3 data, scenario analysis and transition planning.

The bigger picture

It is important to remember that these regulations are not emerging in isolation. They are part of a wider global shift towards mandatory climate disclosure.

The ISSB’s IFRS S2 acts as a global baseline, and more than 30 jurisdictions are already moving towards mandatory requirements. Meanwhile, Europe’s Corporate Sustainability Reporting Directive (CSRD) and the UK’s transition plan disclosure framework overlap significantly with both IFRS S2 and California’s rules.

For multinational companies, this means a siloed approach is not sustainable. Instead, organisations should:

• adopt a unified framework built around IFRS S2 and the GHG Protocol, both of which align closely with California’s requirements
• streamline governance structures so that climate risk management is embedded into enterprise risk processes and board oversight
• prioritise Scope 3 data quality to meet the highest disclosure thresholds while reducing duplication across jurisdictions.

Beyond compliance

Compliance with California’s climate rules should not be seen as a tick-box exercise. By embedding disclosures into core business strategy, companies should be able to:

• enhance resilience to both physical and transition climate risks
• build trust and strengthen relationships with investors, regulators and customers
• drive innovation and operational efficiency through a clear decarbonisation roadmap
• signal credibility to stakeholders through transparent reporting.

Acting early will help create efficiencies and avoid last-minute bottlenecks. This will position early movers not only for California’s new laws but also for the ever-evolving network of ISSB-aligned regulations around the world.

Our guide to the new regulations

California’s new climate regulations mark a step change in corporate accountability on climate risk and emissions disclosure. Planning ahead, understanding the requirements and knowing how they relate to other global frameworks will help create value and build resilience.

Our new guide to California’s climate regulations provides a practical breakdown of the rules, timelines and actions to take now.

If you need support in interpreting the requirements or integrating them into your strategy, our expert team would be pleased to help. Get in touch at info@flag.co.uk.